How metal makers can hedge against inflation in 2022

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Metal fabrication companies need to act now to protect themselves from the pain of inflationary costs. erhui1979/Getty Images

We are only in the first half of 2022, but it is already shaping up to be a difficult year on all levels.

And while some of these challenges aren’t new – the supply chain has been down for over a year now and labor shortages have affected everyone – the increased complexity of inflation and of rising interest rates will affect results, both in 2022 and beyond.

Over the past couple of years, many manufacturers have been cautious, and with good reason. But the current economic climate may present opportunities for stores to hedge against inflation and rate hikes by being decisive and acting quickly.

Do not wait. Buy now!

Inflation has increased. The core consumer price index rose 6.0% over the past year (January to January), the largest one-year increase in nearly 40 years. The Federal Reserve typically responds by raising rates to dampen rising inflation, and almost all economists think it’s a certainty in 2022. According to Forbes, rates could be hiked five or six times in 2022. This will continue all year, as the Fed will likely raise rates at nearly every meeting – a quarter point here, a half point there.

Ultimately, prices and rates are probably at their lowest right now. And as “right now” moves further into the year, it will still ring true for the foreseeable future. Prices and rates are likely to slowly rise again and again until inflation finally peaks. Once that happens, rates will slowly drop.

But if history is any indicator, these things deliberately happen over months, even years. A determined manufacturer ready to act now can guard against this by acquiring the equipment and machinery they know they will need in the near future.

In other words, if you know prices and rates are going to go up, and you also know you’ll need a new press brake within the next 18 months, the best decision might be to buy it now instead. than to wait. Locking in a better price and rate now is a definite competitive advantage and puts you in a better financial position than if you were expecting.

Besides the obvious financial issues, the availability and delivery of needed goods may come into play. The supply chain is still quite slow and very unpredictable, and some equipment is already in 2023 for delivery dates. That’s all the more reason to be proactive and get that press brake (or any machine your shop might need in the next 18 months) right away.

Article 179: Make sure you get it

Section 179 is particularly robust in 2022, with the deduction increased to $1,080,000. To benefit from this deduction in 2022, you must purchase business equipment and put it into use during the calendar year (before December 31, 2022). That means it needs to be installed, plugged in, and turned on.

Traditionally, many companies postpone major purchases under Section 179 until the third or fourth quarter. But in 2022, there is a risk of missing the deduction if the purchase is stuck in production and/or shipping. If the machine is elsewhere on a loading dock, you cannot commission it.

Consider Used Equipment

Supply chain issues have forced businesses of all sizes and in all industries to look at used machinery, trucks, attachments and almost any other type of equipment. For many, the second-hand market opens doors they hadn’t considered before – and it’s eligible for Section 179.

There is also an advantage for sellers. If you have a good used machine, you might be surprised how much you can get for it if you sell it now. Factor this into your 2022 plans. As mentioned much earlier, buying a new piece of gear could be beneficial now, but that benefit is magnified if the piece you’re replacing will sell for a good price on the market. second-hand market.

Many manufacturers have taken a wait-and-see approach in response to the events of the past two years. But the current economic situation is beginning to favor their proactivity. Companies that act now can improve their bottom line today and tomorrow.

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